Poor crop and bad policy the culprit, not hoarders

That the government should be nervous with prices of tur dal touching Rs 200 a kilo is not surprising since elections have been lost on onions. It is true that at 4.1% in September, CPI inflation is under control despite a drought—food inflation is even lower at 3.9%—but consumers tend to focus on prices that are shooting up, not those that are falling like vegetables which, in fact, have 2.5 times the weight of pulses in the CPI basket. Which is why, despite being a traders’ party, the BJP is following the same anti-trader rhetoric of theCongress party—on Sunday, the government further tightened stocking limits for pulses. While this may improve some supply, it is not certain how much this will help since the immediate crisis is the large damage to the kharif crop in key pulse-growing areas—even 2014-15 was a bad year with pulses production at 17.2 million tonnnes as compared to 19.2 million in 2013-14. Indeed, if those stocking pulses, or onions for that matter, are to be targeted and branded as hoarders, why will anyone get into this business? In any case, in any crop which is harvested twice or thrice a year, the only way to ensure a steady supply is through stocking—large enough warehousing capacity prevents the typical post-harvest collapse that disincentivises farmers.

While the roots of the problem run deep, the government’s misreading of the situation aggravated things. Even by June, with a definite drought in principal pulse areas like Marathwada, it was always obvious the crop was going to fail. Though it is difficult to import tur in very large quantities since there are few other countries that produce anywhere near what India consumes, had the government encouraged futures trading, the price signals would have been even louder, and imports of other pulses could have been stepped up. A lasting solution, of course, lies in rationalising farm policy, with imports and exports as a vital ingredient of it. Right now, with farmers getting R15,000 per hectare of subsidies for growing wheat and rice, and none for pulses—which actually helps fix nitrogen levels in the soil—it is obvious the incentives structure is all wrong. Indeed, pulses have a double risk as they are grown on largely unirrigated land (drought risk) and on most occasions, with market prices falling below the minimum support price, there is significant market risk as well. Instead of a difficult-to-run price stabilisation fund which the government is talking of, it would be better to either build up buffer stocks to prevent this kind of price surge, or to give crop-neutral cash subsidies to wean farmers away from wheat and rice. Any policy that does not address these issues will have only a short-term impact and, if the policies are as simplistic as cracking down on those holding stocks, the short-term impact will also be negative.